Reference no: EM132824527

Question - This study investigates the relative returns from long-term investment into Walmart and Amazon. The question about comparability is difficult for two primary reasons. First, the product categories of both the companies are significantly different. Second, while the stock price of Walmart is influenced by its income stream and (and the associated dividends), the stock price of Amazon has been largely shaped by its revenues (as well as the rapid growth in revenues). We addressed these challenges by relying on three distinct approaches. They include the development of synthetic competitors and identifying the performance of each firm relative to this competitor across all major product categories, projecting the income stream of the two companies into the future, and forecasting the market price of the stock. Our findings show that compared to their synthetic competitor, Amazon is expected to perform significantly better than Walmart in terms of the revenues, Walmart is projected to perform relatively better in terms of the profitability. We also found that historically, the price of Walmart and Amazon's stock has been closely associated with their revenues. Thus, due to its accelerated revenues the historical trends suggest that Amazon will experience significantly higher appreciation in price relative to Walmart. However, when we take into account the projected income (and therefore dividend) stream, even after excluding the aberrations in Amazon's income, we find that Walmart stock is likely to generate significantly larger revenues. Integrating the price appreciation and dividend streams, we find that an investment in Walmart is likely to yield 37% return while the investment in Amazon is likely to yield 25% return. The comparison suggests that Walmart stock will lead to 12% more return on investment than Amazon. Walmart Stores, Inc. (Walmart) is an American multinational retail corporation that operates a chain of discount department stores and warehouse stores. Headquartered in Bentonville, Arkansas, United States, it was founded in 1962 by Sam Walton and incorporated in 1969. It employs 2.2 million staff in 28 countries over 11,000 stores, and 1.4 million of the employees are in America. The company was first quoted on the New York Stock Exchange in 1972 and rose from a regional to a national giant. It is also one of the world's most valuable companies by market value, [1] and is also the largest grocery retailer in the U.S. In view of the excellent performance in the past forty years, Walmart not only focuses on retail business, but also wholesale and international business. Now Walmart has three main parts of their business, Walmart U. S., Walmart International and Sam's Club. However, in recent years, the revenue of Walmart decreased with the rise of e-commerce, such as Amazon, EBay and Best Buy. The ecommerce stole the revenue from Walmart and Walmart decided to develop its own e-commerce to provide customers online retailing for Walmart, Sam's Club, ASDA and all other international brands. It is a tendency to shop online which brings lower prices and more convenience, and obviously, Walmart knows that, so in the past few years they spent an enormous amount of money to build and improve their online shop

Required -

1. Walmart has unsystematic risks which they face because of their business operations. Suggest two ways Walmart can diversify away their unsystematic risk.

2. "First, the product categories of both the companies are significantly different." What is the name of risk caused by nature of business?

3. Walmart is likely to yield 37% return while the investment in Amazon is likely to yield 25% return however this may not happen due to environment risk. Environmental risk is when external factors impact on the performance of businesses, or makes its decisions associated with its strategies, operations, customer and supplier relationships, organizational structure, or financing either unproductive or outdated. State and explain the factors which constitute environment risk.

4. Process risk relates to the objectives of a business that are not met due to the process designed by the business failing to support the business model. Discuss the characteristics or variables which contribute to the failure of a business designed process (process risk)?

5. Provide six examples of process risk and explain how they affect business operations.